Cyprus Tax Department Revises Transfer Pricing Safe Harbour Rates

On 12 October 2026, the Cyprus Tax Department issued Circular 5/2026, revising the minimum and maximum rates of return used in the safe harbour (simplification) measures for intra-group financing, originally introduced by Circular 6/2023.

The revised rates apply from tax year 2026 and stay in force until the Department announces a further revision. If that happens, it will also set the date from which the new rates start to apply.

The measures are designed for persons who are exempt from the obligation to maintain a Cyprus Transfer Pricing Documentation File. They give taxpayers a simpler, more predictable way to demonstrate that their controlled financing transactions are at arm's length.

Revised Safe Harbour Rates

A. Financing between related persons funded through credit instruments

Until now, a single minimum return of 2.5 percentage points applied, regardless of whether the entity had the financial capacity to bear the risks from its own equity. The rate now depends on the outcome of the functional analysis and more specifically on whether the entity controls the risks of the transactions and has the financial capacity to assume them:

• Where the entity does not control the risks connected with the transactions and does not have the financial capacity to assume the risks: minimum return of 0.5 percentage points before tax
• In all other financing cases under paragraph 14: minimum return of 2 percentage points before tax

(Previously: a single minimum return of 2.5 percentage points)

B. Financing to related persons funded from own capital

• Minimum return equal to the yield of the 10-year government bond of the state in which the borrower operates, plus 2.25 percentage points before tax

(Previously: plus 3.5 percentage points)

C. Financing from related persons, to the extent used in the business

• Maximum borrowing cost equal to the yield of the 10-year government bond of the Republic of Cyprus, plus 1.75 percentage points before tax

(Previously: plus 1.5 percentage points)

Loans in a Currency Other Than the Local One

Where the loan is denominated in a currency different from the domestic currency of the state in which the borrower operates, the yield of the 10-year government bond of the same state, in the currency of the loan, is used, provided it is published on the Tax Department's website.

If that rate is not available, the taxpayer should contact the Intra-Group Transactions Unit of the Tax Department to agree the reference rate to be used.

What Remains Unchanged

The minimum profit mark-up of 5% on the relevant expenses for low value-adding services is not affected. All other conditions and provisions of Circular 6/2023 on the application of the safe harbour measures continue to apply as they are.

What This Means in Practice

If your group has intra-group loans or financing arrangements involving Cyprus entities, now is a good time to:

• Re-check the pricing of these transactions against the revised rates for the 2026 tax year, including interest accrued so far this year
• Revisit the functional analysis behind any debt financing, since the move from 2% to 0.5% depends on who controls the risks and who has the financial capacity to bear them
• Identify loans in foreign currencies early and confirm whether the relevant reference rate is published, so there are no surprises at year-end
• Factor the new rates into 2026 tax computations, budgets and year-end financial statements

PGE&Co remains at your disposal for any clarifications and for further assistance that might be needed on this or on any other matter.